The First Reform

The global financial crisis has prompted numerous calls for regulatory reform in areas such as banking, hedge funds, financial innovation and executive compensation. Reforms may be needed. But the first and most fundamental changes must take place in the human heart.

It is precisely in times when institutional reforms seem most urgent that restraint and prudence are sorely needed. Large-scale crises, such as the present one, have deep roots that are mostly not visible and obvious. Focusing energies on the surface is not only wasteful; it also risks masking the deeper causes, which will then continue to propagate like weeds right under our unseeing eyes.

The real issue is morality. Yet to say so is to say little. Much talk about values and principles quickly becomes empty rhetoric unless it is rooted in people’s hearts, in the core of our personal existence from which arise our motivations and actions in concrete situations.

The real issue is, therefore, our understanding of what is our true good. We cannot fail to seek happiness, but we can – and often do – fail to grasp what it is and how to achieve it.

This is the fundamental conviction of classical virtue theory: that virtue is the necessary basis of man’s fulfillment as a rational being, and at the heart of each and every immoral act lays an intellectual mistake. To be sure, such mistakes often are the consequence of disordered attachments to created goods. But those attachments in turn are accompanied by acts of reason, mistakenly affirming apparent goods as the good itself – the end of our actions.

The reformist mentality focuses its energies on institutions: laws, regulations, policies, and social organizations. Institutions are certainly important. However, the emphasis on institutions is misleading, and even dangerous. It rests on a hidden and false premise: that the person is a morally static being. Thus human nature is what it is – perhaps not totally corrupt but certainly greedy and selfish – and the only solution to social ills is to alter the institutional context.

The reformist mentality overlooks the more fundamental issues, and in doing so gets a distorted picture of what it is about the institutions that needs reforming. Seeing some crooks and villains, the reformer may even go so far as to assume that all men are crooks and villains – or at least the laws should treat them as if they were crooks and villains – so that what began as a rash judgment may end up as a self-fulfilling prophecy, when reasonable people react to their unjust treatment by disregarding the spirit of the law, or even its letter.

Institutions are secondary, personal morality is primary. But personal morality is more than a collection of abstract values and principles. Those too are subordinate to the real questions: Who am I? What is the purpose and meaning of my existence? Who made me, and what for?

We may not think often about such penetrating questions, but in each and every choice in a concrete situation we reflect our convictions about these issues. Once explicated, our convictions are sometimes more or less sustainable, other times plainly silly.

Institutions matter, but they do so in a way that differs from the reformist vision. According to Aquinas, human laws have two basic functions: to coordinate and to educate. But not to coordinate the maximization of gross domestic product, nor to educate in marketing and finance. Law – all law – should be at the service of the true good, helping us to know, love and serve the Lord, and to love our neighbor as ourselves.

That implies education in virtue. Criminal law, for example, has the task of encouraging upright behavior. It is not meant only to redress past wrongs, but also to encourage good habits in the criminal – and to prevent the weak from falling into temptation.

But government is not the primary educator in virtue. That is the turf of families, churches, and other social institutions. The proper task of government is to assist those other institutions, when necessary, by coordinating their organization and appropriately channeling resources and energies to their support. This is the principle of subsidiarity.

More important than the status of hedge funds is the role of the family in society and in the education of children. More important than executive compensation is the promotion of true and faithful marriage. More important than financial derivatives is the appropriate regulation of social life in order to protect the innocent and the weak – young and old – against harmful cultural influences.

Defining the proper course of action is always a delicate matter for prudential judgment. It is not advisable to prohibit all vice, lest the vicious rise up and topple the authorities, so that greater evil results. Neither should one be dismayed by opposition: much grave injustice has been committed because good people were too cowardly to stand up against the shouts of a little crowd.